Friday, December 07, 2012

Obama Unilaterally Disarms, and Neither Side Seems to Understand What is Happening

-- Posted by Neil H. Buchanan

In my Dorf on Law post and Verdict column yesterday, I took a slightly different tack on the question of how President Obama should respond to the Republicans' latest attempt to hold the economy hostage to the debt ceiling. The main thrust of my argument was that the President should simply make it clear to the Republicans that they should fear giving him the discretionary power to cut spending below legally required levels. I also continued to press the case that President Obama should not hesitate to invoke his Constitutional responsibility -- if put into the "trilemma" that Professor Dorf and I have been explaining for the last 16 months or so -- to issue debt sufficient to fulfill his duties to execute the budget (taxing and spending laws) that Congress has already passed.

This is a fast-moving story, and within hours, the White House had made an announcement that they were taking a different Constitutional argument (which Professor Dorf and I have also endorsed), based on Section 4 of the 14th Amendment, off the table. White House Press Secretary Jay Carney was quoted as follows: "This administration does not believe the 14th Amendment gives the
president the power to ignore the debt ceiling ... period."

First, let us stop to consider the negotiating strategy here. In the midst of fierce negotiations, why in the world would any competent negotiator take any strategy off the table? What did the White House expect to gain, by saying that they would not even consider the 14th Amendment argument? One possibility is that they are trying to calm financial markets. Honestly, if that is their hope, then they are less competent than they otherwise appear. There is simply no way that the markets will calm down, in the face of a potential Republican-forced federal default, when the President has removed one tool to try to convince the Republicans to back down.

Second, why take this option off the table, while saying nothing about any others? There is again buzz about the "Big Coin" option, by which the Treasury would exercise its Constitutional power to mint actual coins, in this case creating a "big" platinum coin -- although the physical size is irrelevant -- and declaring that the jumbo coin has a face value sufficient to cover the debt shortfall. I discussed this argument last year (Dorf on Law post here, Verdict column here), noting that it does have the appeal of being based on clear Constitutional language.

As I noted back then, however, everything else about the Big Coin option is nuts. Especially if the issue is that we must calm financial markets, what possible sense can it make to have the White House allow a Cabinet Department to make a public mockery of the process of creating money, exposing the public to the uncomfortable reality that all modern economies rely on currencies (even those supposedly backed by gold) that are really nothing more than balance sheet entries in a giant game of "trust your neighbor"? If I am running a hedge fund, the last thing I need is for people to say: "Wait a minute, the government can just mint trillion-dollar coins whenever it wants? What the hell I am doing putting my money in the bank? Where's my mattress?!!"

Maybe the White House will get around to taking the Big Coins off the (presumably big) table, too. For now, however, they have taken only one argument -- one that has at least some academic and legal credibility -- and thrown it overboard, with nothing to show for doing so. Even if, as I suggested yesterday, they suspect that the 14th Amendment argument sounds too much like a legal technicality (but again, compared to Big Coins?!), there is no good reason not to hold that card until the last possible minute.

What has become clear, however, is that virtually no one seems to understand what is really going on. The media treated the Carney announcement as a complete capitulation by the White House, imagining that he swore off all Constitutional (and other) arguments, not just the 14th Amendment-based claim. Given the way this White House is proceeding, maybe that is actually what they meant to convey. I hope not, however, because there is a very real possibility that the Republicans will actually not agree to a debt ceiling increase next year. At that point, even if Obama follows my advice from yesterday (cutting spending in ways that Republicans would hate), that is still both Constitutionally and economically much worse than issuing enough debt to meet all federal obligations that come due under the duly-enacted budget.

Of course, the people who are arguing that the President has only one choice -- refusing to issue debt, while dutifully cutting spending, and ignoring taxes entirely -- are in some cases almost surely being intentionally dense. In an NPR blog post yesterday (in which Professor Dorf was quoted describing the three options open to the President), the reporter quoted two conservatives who say that Obama will have only one choice. Neither source, however, was quoted as saying anything indicating that they understand what is really going on.

One source, an attorney who served in the George W. Bush White House, said: "Executive officers who spend money when it's not authorized or incur
debt that hasn't been authorized by statute are actually violating
federal law," going on to note that the federal law in question was a criminal statute. Well, yes. As Professor Dorf and I have been saying all along, the Republicans are trying to put the President in a position where he will -- no matter what he does -- end up violating the law. That is the whole point! Noting that unilaterally issuing debt would be an illegal Presidential act merely recognizes one-third of the problem. No one could claim that it is not illegal. We claim that it is the least bad among three illegal choices (and that there are no legal options, other than crashing the global financial system by issuing cartoon coins).

The other source, former federal judge (and now law professor) Michael McConnell, is quoted as follows: "I have never seen a remotely persuasive argument that the president
is entitled to borrow money that the Congress hasn't authorized. [The
14th Amendment] does not authorize the president to do
anything. And it certainly doesn't authorize him to violate the clear
constitutional provision that requires congressional authorization for
borrowing."

Here, the argument is just as wrong, but for a different reason. The budget each year includes provisions that authorize Treasury to borrow funds, if needed, to cover authorized spending. The debt ceiling statute purports to supersede that permission. If, as we argue, the 14th Amendment (or other Constitutional provisions) makes the debt ceiling unconstitutional, then that removes the bar on additional borrowing -- borrowing that is authorized by the budget. And we know that it is authorized, because if it were not, then the bar to additional borrowing would be the lack of authorization to borrow, not the debt ceiling.

Moreover, McConnell again focuses on the 14th Amendment, whereas the "remotely persuasive arguments" are not limited to that argument. He could just as easily have said, "I have never seen a remotely persuasive argument that the president
is entitled to spend money in amounts other than those that the Congress authorized," and "I have never seen a remotely persuasive argument that the president
is entitled to raise tax revenues in a way that the Congress hasn't authorized."

Our trilemma argument has been out there for over a year, and I know that people like McConnell have heard it. In McConnell's case in particular, I made the argument at an academic conference in January, while he sat next to me. He did not agree with me, and we argued energetically, but none of his arguments were actually responsive to the trilemma -- or even confronted it. The discussion focused, even in its least irrelevant moment, on whether Congress can reduce spending in future budgets, after it has made long-term promises in prior budgets. That is an interesting question, but it is simply not what is at stake here.

One way to know that one's opponents (and, in this case, even some allies) have nothing to say is that they keep repeating themselves, without actually responding to counter-arguments. What we hear, over and over, is: "The Constitution gives only Congress the power to authorize debt." What we never have heard is anyone saying that they are aware of the trilemma, showing that they understand it, and arguing that it is better for a President to arrogate to himself the power to change Congress's priorities on spending than to borrow enough money to cover the budget for the remainder of the fiscal year (or less, in the case of continuing resolutions, the current one running through March 27). Instead, they keep repeating: "The Constitution gives only Congress the power to authorize debt." Thanks for that. We had no idea.

I do not expect Bush appointees to agree with us. It is in their ideological interest to say whatever the Republicans in Congress need them to say. What is surprising is that people on both sides who claim to care so much about limiting a President's power so blithely act as if their preferred course of action is Constitutionally, economically, and even logically uncontroversial. Republicans have no current interest in changing their tune (although honest conservatives would fear the long-term damage). Why Democrats are being so obtuse is a mystery, because they would have good policy arguments and important Constitutional principles on their side, if they came around.

1 comment:

I think the arguments here are sound on both a legal and policy basis, but that if the President took unilateral action to issue debt above the statutory limit it would be a disaster from a political point.

The American public wants this settled by compromise. They don't like it when official craft cute legal arguments around a problem, even when those arguments are valid.